Budget 2012: Televisions, cars, colas & eating out to cost more

NEW DELHI/KOLKATA: The budget proposals to increase tax rates will hit consumers as early as this week with a host of products and services set to cost 2%-5% more.

Makers of cars, consumer electronics, home appliances, digital cameras, soft drinks and milk, wellness service providers and restaurateurs told ET that they will increase prices despite fears that it will impact demand.

"There is a lot of pressure on margins and it's not possible to absorb the hike in excise duty," Kamal Nandi, VP (sales and marketing) at Godrej Appliances, said.

Godrej plans to increase prices of refrigerators, washing machines, air-conditioners and televisions by minimum 2% from next week. "It will definitely have an impact on demand since the industry was already going through a bad phase," Nandi said. Finance Minister Pranab Mukherjee in his budget proposals increased excise duty and service tax to 12% from 10% and widened the service tax net to include all barring 27 types of services mentioned in a negative list.

Those who plan to pass on part of this to consumers include Panasonic, Godrej, Canon, Coca-Cola, Amul, Specialty Restaurants and VLCC besides all major carmakers.

Top beverages maker Coca-Cola plans to increase prices of 1.5- and 2-litre PET bottles of its drinks such as Coca-Cola, Thums Up and Sprite by about 4%-5% in a month, but there will be no price rise for smaller packs, a Coca-Cola India spokesperson said. Rival PepsiCo is expected to follow suit, although the company declined to comment on any proposed price increase.

Potholed road ahead

All major carmakers have announced price increases in the range of 2%-5% across segments due to an increase in the excise duty, in a move that will most certainly impact sales in an industry already fighting slowing demand due to rising fuels prices and loan rates.

"Rise in excise and import duty is not be very conducive for the auto industry as it will directly affect buyers sentiments and would lead to slowdown in sales in the next few months," Toyota Kirloskar Motor deputy MD (Marketing) Sandeep Singh said. Popular cars such as Maruti Alto and Swift, Hyundai i10 and i20 and Tata Indica cost anywhere between Rs 5,000 and Rs 20,000 more, depending on the different variant from Saturday.

Bigger cars like Honda City or the Toyota Camry as well as the expensive sports utility vehicle like the BMW X1 or the Audi Q5 and top end sedans like Mercedes SClass can go up by anything between Rs 35,000 to Rs 3 lakh. Neeraj Garg, member of board and director at Volkswagen Passenger Cars India, said the new duties will act as a growth deterrent and impact carmakers' longterm strategy.

Boost to grey market?

Japan's largest electronics company, Panasonic plans to increase prices of air conditioner, refrigerator, washing machine and microwave ovens by 3%-4% from April, while prices of LCD and LED TV will also go up by 2%. "If anyone wants to buy at lower price, one should complete their purchase as early as possible this month," Panasonic India Managing Director Manish Sharma said.

The Rs 38,000-crore consumer durable industry feels growth rate may take a hit by 10%-15% this year due to the increase in duties. The growth rate had more than halved to 6% last calendar from 13% in 2010 due to a slowdown in economy, rising prices and high consumer loan rates.

Prices of digital cameras and camcorders too will increase due to 2% hike in countervailing duty (CVD), while prices of highend digital SLR cameras will rise as much as 14% due to a renotification of cameras with video recording capability.

The new notification puts 10% basic custom duty, up from zero, on digital cameras of minimum 4.8 megapixel that can record videos at more than 23 frames per second and are capable of more than 30 minutes of continuous video recording. This may boost the grey mark as most digital SLR cameras fall under this category, Canon India Senior VP Alok Bharadwaj said.

Pay more for services

Eating out and beauty services too will now cost more due to a 2% increase in service tax. Vandana Luthra, founder, beauty and slimming services chain VLCC, said most services will become costlier due to the raise in service tax, but declined to share details such as the increase in rates and effective date.

Anjan Chatterjee, chairman and MD of Specialty Restaurants, which runs Mainland China and Oh! Calcutta restaurants, said the company will raise prices by 2%, but only over the next six months when the restaurants revise their menu.